Despite recent fears, Canada is doing well in international trade

Despite recent fears, Canada is doing well in international trade
Despite recent fears, Canada is doing well in international trade

MONTREAL — The recent obstacles facing the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and the prospect of increased isolationism in the United States in the run-up to the presidential election of November could give the impression that the outlook for Canadian international trade is darkening.

Despite everything, he is staying the course for the moment. The amount of the country’s trade was more or less similar in 2023 as in 2022 – $1,521.6 billion in cumulative exports and imports in 2023 compared to $1,523.5 billion in 2022 according to Statistics Canada -, an amount which now exceeds the pre-pandemic levels.

“There is no particular reason to think that Canada is not an interesting trade destination,” observes Arthur Silve, associate professor in the economics department at Laval University and researcher at the Raoul-Dandurand Chair. in strategic and diplomatic studies. This did not prevent “a bombshell” from falling on March 21, when the French Senate decided to vote against the ratification of CETA.

This is a first blow, but not the end of the agreement, which must still pass the vote of the French National Assembly, in a decisive vote, which could take place at the end of May. If it were negative, the treaty would no longer be in force, but the consequences would not be very significant, according to Mr. Silve.

“It would continue to have a number of rules that would apply, including those of the World Trade Organization (WTO). So there would still be trade, but customs duties would be a little higher. We are not going to experience a radical change overnight,” he assures us.

Beyond the consequences of the end of a treaty of this magnitude, a reality is revealed with this decision. “This shows that Canada is competitive enough to worry certain pressure groups in France,” says the researcher.

More than a question of Canada’s attractiveness, the end of CETA would rather be an isolationist decision.

“Above all, we are a relatively significant market with extremely privileged access to the entire North American continent. At the moment, the level of the Canadian dollar is relatively low, which means that goods produced in Canada are rather attractive for foreign importers,” recalls Mr. Silve.

Fear of American isolationism

If trade with the European Union is important for Canada, those with the United States are even more important, the country being by far its largest trading partner, with $595 billion in exports and $374.1 billion in imports in 2023 according to Statistics Canada.

With the US presidential elections at the end of the year, it could be possible that the Americans’ choice could have an impact on trade between Canada and the United States.

“I am hardly optimistic, whoever the candidate,” laments Rodrigue Tremblay, economist and former Quebec Minister of Industry and Commerce in the Lévesque cabinet.

On both the Republican and Democratic sides, the time seems to be for protectionism. “Both candidates pose problems. Mr. Biden blocked the Keystone pipeline, which was supposed to bring oil from Alberta to Texas. (…) Mr. Trump has already, when he was in power, imposed duties on the import of lumber from Canada,” lists Mr. Tremblay.

“Mr. Trump, like Mr. Biden, does not have a record that shows much openness to liberalism, adds Mr. Silve. So the question is: what is the difference between the two? I think that in terms of international trade, the differential would probably be moderate.”

But despite these few disagreements between the two countries, the situation is not dramatic for Canada.

“Canada is very integrated in international trade with the United States. On its scale, this relationship is essential, and not bad at the moment,” reassures the researcher.

If the United States remains open to international trade, Canada will continue to benefit from its advantageous position, without too much competition.

“I don’t think the Middle East or South America are competitors. They are far from the United States, and transportation costs are becoming more and more significant,” explains Mr. Tremblay.

At the local level, even though Mexico exports more than Canada to the United States — US$454 billion compared to US$436.6 billion according to the Office of the United States Trade Representative — there is no strong competition between the two nations.

“We are not in competition with Brazil in the production of chocolate, or Mexico in maple syrup. There are certain areas where this is the case, but it is better to be part of a supply chain. Certain products will be the result of exchanges between countries,” describes Mr. Silve.

It is therefore better to worry about the health of the American neighbor’s economy. According to Mr. Tremblay, a significant slowdown in the superpower’s economy could pose a problem for Canada.

The need to conquer new markets

In order to limit the difficulties in the event of a weakening of the American economy, Canada must find new trading partners in order to reduce the importance of the United States in its trade, according to Rachidi Kotchoni, economist for the Group of African development bank. The former doctoral student at the University of Montreal notably produced a study in 2020 on the potential for expansion of trade between Canada and the French-speaking countries of West Africa.

Canada has already started to develop new partnerships. Among them is the Indo-Pacific Strategy, which concerns certain Asian countries.

Announced in November 2022, it provided for an investment of $2.3 billion over five years to develop Canada’s influence in the region. This notably includes India, the world’s fifth largest economy, with which Canada trades approximately $10 billion in products each year, according to Victor Thomas, president and CEO of the Canada-India Business Council.

But for him, it’s not enough.

“It’s a good start, but Canadian businesses need to change their mentality. Yes, we live in the north of the largest economy in the world, but we also need to understand what is happening in South Asia. If we do not act, other countries will, and we will have missed a big development opportunity,” he worries.

But if certain very attractive markets are already in the sights of the Canadian government, others are left aside. This is the case of Africa, which only represents Canada’s tenth trading partner when adding up trade with all the countries that make it up, according to the United Nations database on commodity trade statistics.

However, the majority of West African countries, in particular, have English or French as their official language. Canada, not being a colonial power, has a good reputation, and some of their inhabitants have emigrated to Canada for studies or work, representing perfect ambassadors, especially since the African market is far from be uninteresting, notes Mr. Kotchoni.

“These countries have immense deposits of mineral and agricultural raw materials; dynamic demographics with abundant and cheap labor; and largely underdeveloped industrial and tertiary sectors in search of ideas and capital,” he describes.

To establish a strong commercial relationship, Canada would need to establish itself in these countries and invest there, a commercial logic that has not yet been implemented. But with a change in the face of the global economy, particularly in the United States, the country could be forced to do so.

“What Canada needs is to reduce the concentration of its export and import baskets, which means reducing the weight of the United States in its trade. And West Africa does indeed offer enormous opportunities for Canada to achieve this goal,” says the economist.

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